Brian’s Brainstorm
Investment Volatility
Last month we discussed how a hyperactive media encourages us to make bad investment choices. But the volatility of our wealth portfolios also leads us to make ill-advised panic decisions. Everyone has a comfort zone with regards to their own investments. Some people can sustain higher losses without feeling nervous than others. But everyone has a breaking point when the losses are so bad you just throw in the towel.
Now we know in the long run that UK equities have outperformed UK gilts and cash. In the 115 years to end 2015, UK equities have delivered an absolute annual return of 8.9 per cent compared with 5.2 per cent from gilts and 4.7 per cent from cash. Now from this observation it might be deduced that the best asset allocation for our wealth is 100 per cent equities. The problem with this line of thinking is that equities are historically more volatile than other asset classes.
Let’s take a look at the FTSE 100 index over the last 10 years: On four occasions the drop in this index of blue chip UK stocks from peak to trough has been by 19 per cent or more. From October 2007 to March 2009 it fell a staggering 49 per cent as the financial crisis unfolded. The most recent slump in the FTSE index was by 23 per cent from April 2015 to February 2016. These episodes would have been extremely unnerving for an individual fully invested in UK equities; and would have probably led to a decision to liquidate the portfolio near the bottom of the market.
This is why at Conçerva we aim to invest in a mixed portfolio of uncorrelated assets which take out the highs and more importantly the lows in an individual’s investment experience.
News
This coming month will see the very first meeting of the Dreadnought Discussion Union.
Details with regards to the DDU can be found by following the link below:
Staff Matters
- Since our last Newsletter, we held our annual Christmas party at Albert’s Schloss. A great time was had by all and we would like to thank Louise and Maureen for organising the event.
- Following on from our November newsletter, our latest adviser Martyn Mulligan continues to expand the Conçerva team’s breadth of knowledge with his expertise on family law and divorce matters, with a particular focus on pensions. This has been reinforced by his increasing connections with family lawyers and recent affiliation to Resolution working towards full accreditation.
Statistical Information
| Last Month | This Month | Change | |
|---|---|---|---|
| CPI | 0.9% | 1.2% | +0.3% |
| RPI | 2.0% | 2.2% | +0.2% |
The latest inflation figures released on 13th December 2016 by the Office for National Statistics registered an increase in both measures of inflation and saw the highest Consumer Prices Index recorded since October 2014.
Clothing and footwear prices, along with those motor fuel and food have pushed inflation up. Interestingly, recreation activities have also become more expensive over the last month. IT products, which are predominantly priced in dollars, have suffered from the recent exchange rate issues and lead this sector’s price increases.
Should you wish to find out more about the inflation movements please click on the following link which will take you to the ONS website and this month’s statistical bulletin:
| November 2016 | December 2016 | Change | |
|---|---|---|---|
| Base Rate | 0.25% | 0.25% | 0.00% |
The latest meeting of the Monetary Policy Committee was held on 15th December 2016 and again resulted in a unanimous vote from all nine members to keep the Base Rate at 0.25%.
The MPC is next due to meet on 2nd February.